SBC Unable to Shake Erosion of Revenue

Telephone giant SBC Communications Inc. on Wednesday reported its 13th straight quarter of declining revenue as subscribers dropped lines and competition in general kept a lid on major price hikes.

California’s dominant local phone-service provider said first-quarter sales slid 2.4% to $10.1 billion from $10.4 billion in the same quarter last year. Profit fell 61% to $1.9 billion, or 59 cents a share, from $5 billion, or 74 cents, in the same quarter last year -- when there was a $2.5-billion gain from accounting changes.

Excluding one-time charges, SBC earned 37 cents a share, 5 cents more than Wall Street analysts had expected. Its shares rose 41 cents to $24.77 on the New York Stock Exchange, where telecommunications companies generally fared well.

SBC said it expected to start posting year-over-year revenue growth in the third or fourth quarter; the company hasn’t posted a gain in quarterly revenue since the end of 2000. But spokeswoman Anne Vincent cautioned that SBC wasn’t forecasting that full-year sales would climb above last year’s $40.8 billion.

F. Drake Johnstone of Davenport & Co. in Richmond, Va., said SBC faced “a difficult year or two. The pace of declines may slow in the next few quarters, but when you see what’s on the horizon, things are going to get worse. The pace of competition will rise further.”

For now, SBC Chairman Edward E. Whitacre Jr. said, the company was exceeding its targets in its major growth areas such as long-distance and digital subscriber lines, or DSL, for high-speed Internet access.

SBC added 446,000 DSL customers in the quarter, raising its total to 4 million. On the other hand, it lost 427,000 residential and business customers in its traditional land-line operations, which account for more than half its revenue.

Cingular Wireless, which is 60% owned by SBC, added 554,000 subscribers, though nearly half of them were wholesale customers or bought prepaid accounts.

“And you can’t ignore the fact that AT&T; Wireless, which Cingular is buying, lost 367,000 customers in the first quarter,” Johnstone said. “So combined” the two mobile phone service providers did poorly “in a quarter when Verizon Wireless is probably going to add 1 million customers.”

Verizon Communications Inc. is expected to report quarterly results next week.

Johnstone pointed out that SBC and other conventional phone companies face uncertainty in federal rules over local phone competition and a difficult task in negotiating contracts with rivals for leasing Bell lines and gear.

SBC offered Tuesday to keep its network open to rivals through the end of the year if they agreed to pay $24 a month per line throughout SBC’s 13-state system. On Wednesday, Verizon set up a framework for talks on longer-term contracts, saying it would expect lease rates to range from $20 to $24 with annual increases of $1 to $2.

SBC’s wholesale rate in California averages a little more than $14; Verizon’s is about $15.

But wire-line rivals aren’t the Bells’ biggest problem, Johnstone said. Cable companies, which still control most of the market for high-speed Internet access, are starting to roll out telephone services using the technology known as voice over Internet protocol.

VOIP sends voice much like e-mail over high-speed data lines, not conventional voice lines, and avoids many of the surcharges, taxes and access fees that local carriers charge long-distance companies to complete calls.

On Wednesday, the Federal Communications Commission denied an AT&T; request that calls going over its VOIP-enabled long-distance lines be exempt from the access charges. The FCC said that because the calls begin and end on regular phone lines, they are subject to the charges.

The decision doesn’t affect AT&T;’s new CallVantage VOIP service, which sends calls solely over the Internet. The company started rolling it out in California this week.

AT&T; criticized the FCC decision, saying the agency had promised to protect investment in new technologies. “The FCC today did a stunning about-face and chose instead to protect the monopoly revenues of the Bell companies at the expense of consumers everywhere,” AT&T; said in a statement.

SBC fired back: “We’re gratified the FCC provided the correct, obvious and only answer to end AT&T;’s illegal self-help scheme.”